Foreign Investments a Vote of Confidence in Region's E-Commerce

Feuilherade, Peter, The Middle East

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CONTINUING BROADBAND PENETRATION across most of the Middle East and North Africa has not only boosted the numbers of Facebook and Twitter users but is also a major factor in the steady growth of e-commerce.

Electronic commerce, or e-commerce, is the buying and selling of products and services over the internet and other electronic systems.

There are currently more than 72m internet users in Arab countries, who spend an average of two hours online daily. International analysts forecast a 54.7 % increase in internet users in the MENA region from 2012 to 2020, as more content in Arabic becomes available. There are more than 250m mobile subscriptions in the region, with Saudi Arabia leading mobile sector growth. Estimates of the current value of the region's e-commerce market vary considerably.

The Jordan-based Arab Advisors Group puts the value of e-commerce related transactions in the Middle East at about $11bn a year. The global e-commerce business PayPal, which launched its Middle East operations in November 2012, is similarly optimistic, estimating e-commerce in MENA to be worth $9bn in 2012.

A study by Visa and Interactive Media reported much lower figures, albeit based on data from 2010. It said that the UAE led the way among the Gulf states in e-commerce spending, with sales reaching about $2bn in 2010, accounting for 55% to 60% of total GCC e-commerce sales. Saudi Arabia was the second largest market, with an estimated $520m, followed by Qatar ($375m), Kuwait ($280m), Bahrain ($175m) and Omen ($70m).

But according to analysts, online shoppers in three key markets--the UAE, Saudi Arabia and Egypt--spent just over $1bn on internet retail sites in 2011, a figure expected to double by 2016.

Since only 15% of businesses in the region have an online presence (according to Google), the take-up of e-commerce has been slow. And with many consumers still wary of paying for goods online, 70% of the region's e-commerce deals are cash-on-delivery.

As The New York Times observed, e-commerce in the Middle East "is still relatively young and fragmented, extremely capital intensive, and facing logistical hurdles that have led many sites to shut down ... But success stories are now starting to emerge."

Foreign investment

In recent months international investors have committed tens of millions of dollars to three of the Middle East's largest online retailers.

Souq.com, the region's largest online retailer with a customer base of eight million, secured $45m from Naspers, a South African multinational company, and Tiger Global, a New York hedge fund. This marked the largest investment made in an e-commerce and internet business in the Middle East since the 2009 sale of Arabic-language internet venture Maktoob.com, the largest portal in the Arab world, which was sold for $165m to Yahoo!, the second-most popular internet search engine.

In the GCC, the UAE is the market leader in e-commerce spending. With more than three-quarters of UAE households having broadband-enabled computers, the growing number of middle-and high-income consumers online has driven the growth of internet retail sales.

Saudi Arabia not only leads social gaming consumption and mobile internet subscriptions in the MENA region, but also ranks second in e-commerce sales in the GCC region, and represents the biggest retail sector in the region. …

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